From the desk of Tom Bruni @BruniCharting
With Crude Oil down 25% over the last month and the rest of the Energy complex struggling in tandem, let’s take a look at where it stands and where it could potentially head.
In January, Crude Oil put in a failed breakout above 65 on geopolitical tensions and then sold off in classic “from failed moves come fast moves” fashion. Now, we’re 25% lower at the bottom of a year-long range as momentum diverges positively. From our perspective, as long as prices are above their recent lows of 49.30, then this long-term range remains intact and we want to be erring on the long side with a target back up towards 65. Below 49.30, there’s risk down towards the 2018 lows of 42.50.
Click on chart to enlarge view.
Another interesting way to look at this is the CRB Index, which has a 40% weighting towards Energy Commodities, relative to the Equally-Weighted Commodity Continuous Index. This ratio recently broke a 4-year support level and made new all-time lows as momentum diverged slightly. As long as today’s move in Energy holds, then this failed breakdown and bullish momentum divergence confirms and we’d expect further near-term outperformance from the CRB Index, driven by Energy.
If you look at Heating Oil and Gasoline, the setups are also very similar.
We’re also seeing a tactical bounce in Energy stocks which have been an absolute disaster, so there may be some short-term trading opportunities there on the long side. At the very least, it’s tough to be short those names at current levels.
Overall, Energy looks to have confirmed a near-term bottom…especially if we close decently strong today.
Thanks for reading and please let us know if you have any questions!
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